How to Determine a Trust's Schedule of Distributions

As trustee of an estate, you must determine the schedule of beneficiary distributions and be sure that distribution dates are calendared somewhere. The trust instrument may call for fixed amount distributions, a 5/5 provision, trust accounting income distributions, or discretionary distributions.

To determine how much to pay beneficiaries, first look at the trust instrument:

Fixed amount distributions: Sometimes, the trust instrument instructs you to pay a set dollar amount on a certain date. For example, a grandparent might set up a trust so that each grandchild receives $1,000 every year as a birthday gift.

5/5 provision: Often, a trust for the benefit of a surviving spouse contains a so-called 5/5 provision, where the surviving spouse may request a distribution of either 5 percent of the assets or $5,000 annually, whichever is greater.

Trust accounting income: Far more usual than the fixed amount distribution, though, is a distribution that’s based on the net income of the trust, or trust accounting income. The trust may require all income to be distributed annually, quarterly, or even monthly. If the instrument contains this requirement, you must ensure that payments are made within a reasonable amount of time after the due date.

Discretionary distributions: Although it’s by far more frequent for a beneficiary to come to you to ask for money, sometimes you may see a need when the beneficiary doesn’t ask for help. For example, the beneficiary may be struggling financially or may require an expensive medical treatment. Most trusts provide you, the trustee, with the discretion to make additional, unscheduled distributions.

Read your instrument closely to see how much discretion you’re allowed. In the case of discretionary distributions, you’re not limited to distributing only income, but may also make principal distributions if they’re warranted.